Oil prices fell for a third consecutive day on Wednesday, with Brent crude futures and U.S. West Texas Intermediate (WTI) crude both declining by around 0.8%. The market sentiment was dampened by expectations that the Federal Reserve might keep U.S. interest rates higher for an extended period to combat sustained inflation, potentially impacting fuel demand in the world’s largest consumer.
Adding to the bearish sentiment, data from the American Petroleum Institute (API) showed that U.S. crude oil and gasoline inventories rose last week, contrary to analysts’ expectations of a decline. This further weighed on oil prices.
Brent crude futures were down $0.64 to $82.24 per barrel, while WTI crude dropped $0.65 to $78.01 by 1010 GMT. Both benchmarks had shed more than 1% earlier in the session.
Tamas Varga of oil broker PVM noted that the “view on the fundamental outlook remains grim,” and the “timing of a Fed rate cut is ambivalent at best.” Physical crude markets have also been weakening, and the premium of Brent’s first-month contract over the second, known as backwardation, is close to its lowest since January, indicating easing concerns about tight prompt supply.
Fed policymakers stated on Tuesday that the U.S. central bank should wait several more months to ensure that inflation is firmly on track towards its 2% target before considering interest rate cuts. Higher borrowing costs can slow economic growth and pressure oil demand.
Investors are now eagerly awaiting the release of the latest official U.S. oil inventory figures from the Energy Information Administration (EIA), as well as the minutes from the Fed’s last policy meeting, which could provide further insights into the central bank’s assessment of inflation and the potential for future rate adjustments.